How the CARES Act Impacts Your Employee Benefit Plan Provisions

On March 27, 2020, Congress passed the CARES Act (Coronavirus Aid, Relief, and Security Act) for President Trump’s signature in order to help the US economy and workers in the midst of the Coronavirus Pandemic.

While many important funding/relief provisions for affected individuals and businesses have been at the forefront in the media, there are a number of additional provisions within the approved Act related specifically to retirement plans and their participants.

Qualified individuals for which these provisions apply are defined as individuals that have been directly affected either financially through a job loss, quarantine, reduction in pay or furlough or physically through a personal diagnosis of COVID-19 or diagnosis of spouse or dependent.

Below is a brief summary of the main provisions included in the Act.

  • Coronavirus Penalty-Free Distributions (Section 2202 of the Act): Qualified individuals may take penalty-free distributions up to $100,000 from their qualified retirement plan through December 31, 2020.  These distributions will be taxable by the individual over three years unless the individual elects to have all taxes paid in the year of distribution.  In addition, such distributions may be repaid to the plan as a rollover contribution within three years of distribution in addition to such individuals’ annual deferral limit.
  • Participant Loan Limitation (Section 2202 of the Act): The maximum loan amount that can be taken by a participant will be temporarily increased to $100,000 from the lesser of $50,000 or 50% of the vested account balance starting with the date the Act is enacted continuing for 180 days.
  • Participant Loan Repayments (Section 2202 of the Act): The Act delays the repayments for one year for loans due between the Act enactment date and December 31, 2020.
  • Required Minimum Distributions (Section 2203 of the Act):  Required minimum distributions are temporarily waived for certain retirement plans including those covered under 401(a)(9), 403(a), 403(b), 457(b) and individual retirement plans. This relief applies to plans including those commonly referred to as “401k”, “403b”, and “IRA.”
  • Single-Employer Funding Rules (section 3608 of the Act) – The deadline for required employer contributions due during 2020 has been extended until January 1, 2021, however, interest must be accrued and paid between the original due date and payment date.
  • AFTAP calculations (section 3608 of the Act): A plan may use its adjusted funding target attainment percentage as of December 31, 2019, for the plan year 2020 as it relates to any potential benefit restrictions.

SC&H Group’s Tax and Audit teams continue to keep a close watch on updates as they take place. If you have any questions on how these provisions apply to your organization please Contact Us, or to your third party administrator on your qualified plan.

For additional resources visit our Coronavirus Resource Center.